The uneven effects of Globalization were accelerated by COVID. The super asset bubble inflated billionaire wealth to all time highs, while it collapsed the incomes of the working class. Policy-makers sensed the system was at risk and rushed in with unemployment stimulus. Nevertheless, the inequality time bomb has been ticking away silently in the background. Picture what happens in a meltdown scenario - the public will be in no mood for private bailouts amid record wealth inequality. In other words, this epic mega bubble has no safety net. Monetary or otherwise.
Whoever was making massive options bets last week around the FOMC meeting has continued their bets this week. Option skew measures "Black Swan" market risk as imputed from deep out of the money options.
Of course, most of today's pundits would say this is a meaningless signal with questionable accuracy. They are ignoring the fact that it worked well albeit not immediately in 2018 and again in 2020, -20% and -35% S&P declines respectively. However, these recent skew readings have been literally off the charts. The top of the skew range is supposed to be 150, whereas these current readings have been between 150 and 160. The past four weeks now has nine of the ten largest skew readings in the past 30 years. So what if instead of being a meaningless signal, these readings were telling us that the big money believes this is the end of the super cycle. What if these readings were predicting an epic collapse of biblical proportions?
We know one thing for certain, they would be assiduously ignored. The other thing we know is that ALL of today's pundits now ignoring this signal will claim that no one saw it coming.
Top ten skew values since 1990 (data begin):
Aside from elevated skew, there is not even the slightest sign of fear in these markets. The Ponzi class has no clue what's coming. As we see via this chart of NYSE selling pressure, this pattern of complacency has been building over the past decade. Last year's pandemic selloff elicited less panic selling than 2015 and 2011, to say nothing of 2008:
Since the "bombshell" FOMC meeting last week, the Tech sector has been leading what remains of this "rally". Today, the Nasdaq made a new all time high, finally breaking above the February/April double top.
Here we see that breadth and new highs are diverging massively at this new all time high:
Looking at the Global Nasdaq we see two melt-up highs since 2010. The 2015 rally is at the mid-point of the cycle.
That 2015 rally and crash was the "Shanghai Surprise" when PBOC liquidity bid up Chinese Tech stocks to ludicrous valuations. Then they crashed -60%. This latest melt-up is the U.S. analog to that discontinuous price "discovery".
This is the new imagined reality:
Cyclicals on the other hand are looking very Lehman-esque these days.
One example is PNC Financial which made an overthrow high in 2008 as well. It turned out to be a bull trap, since the Fed was preoccupied with fighting rising inflation expectations deja vu of today.
It turns out that those propagating inflation theories back in 2008 were wholesale idiots, just as they are now. But unfortunately, this society doesn't trust anyone who can be trusted.
Raymond James Financial, same idea.
People had far too much confidence in the Fed and therefore they didn't manage risk. They sailed straight into disaster. No deviation from the set course.
Of course most gamblers in 2008 didn't get bailed out, they got margined out. Only the people who actually created the entire financial disaster got bailed out.
And now everyone is betting it will happen again.
Because they believe in the "system".
And I am saying, that's a bad bet this time.
This time around someone with deep pockets agrees with me. If 2008 is any guide, it's Wall Street themselves buying this protection. Just as they did in late 2008 flipping from the Big Long, to the Big Short, using credit default swaps, just in time for subprime meltdown.
Betting their own muppet clients are about to get wiped out by fraud and criminality.
Is this a great fucking system, or what?
